Custom «Economic Essay» Essay Paper

Summary

The Australian economy has undergone periods of dramatic rises and falls. Recent years have been marked with the growing stability in the entire Australian economy, including the mining industry. Since the beginning of the 2000s, the rapid advancement of Asian economies has led to an increase in demand for Australian resources and commodities. Unable to respond quickly to the growing demand for natural resources, mining businesses in all parts of the world had to increase their prices. In their report, Ellis Connolly and David Orsmond perform a detailed analysis of the most recent changes in the Australian mining industry. The report includes a detailed analysis of the factors, which predetermined the dramatic changes in the mining industry over the past decade.

The focus of this report is the Australian mining industry and its dramatic growth in the 2000s. Connolly and Orsmond (2011) start by summarizing the macroeconomic conditions in Australia at the beginning of the new millennium. According to Connolly and Orsmond (2011), at the beginning of the 2000s, Australian mining was mostly considered as the artifact of the industrial economy with no definite future. However, under the influence of urbanization and industrialization in Asia, the Australian mining industry was quickly revived.

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The growing commodity prices played one of the biggest roles in the rapid advancement of the Australian mining industry in the 2000s. Connolly and Orsmond (2011) write that the price boom during the 2000s exceeded a similar boom in commodity prices during the 1970s. At that time, the global community was facing difficulties satisfying the growing demand for goods (Connolly & Orsmond 2011). After a long period of low prices, Australia and the rest of the developed world could not anticipate the rapid changes that occurred in the economy at the beginning of the 2000s. “The stagnation of commodity prices through the 1980s and 1990s discouraged producers from investing in capacity expansions” (Connolly & Orsmond 2011, p.8). Mining investments during the last decade of the 20^th century had been meager (Connolly & Orsmond 2011). The entire mining industry sought economies of scale, and mergers among mining enterprises became more common (Connolly & Orsmond 2011). However, since 2003, Asian economies, and the Asian steel industry in particular, have become the major drivers of economic growth and increased industrial activity. For example, China’s increased demand for steel in the 2000s followed the decades of huge investments in the country’s urbanization and industrialization (Connolly & Orsmond 2011). Based on what Connolly and Orsmond (2011) write, Australia was willing to use the growing demand for commodities for its own benefit.

Australia’s mining industry experienced strong growth during the 2000s (Connolly & Orsmond 2011). The mining boom facing Australia during the 2000s was much greater than similar booms in the earlier decades (Connolly & Orsmond 2011). Mining revenues steadily increased. Mining investments also grew.

Changes in the international demand for energy and steel led to significant transformations in the market of bulk commodities (Connolly & Orsmond 2011). The direction of seaborne iron ore trade quickly changed to target the most prospective consumers, including China (Connolly & Orsmond 2011). Unfortunately, ores other than iron did not perform well during the 2000s, and their production gradually ceased.

The effects of the discussed boom on the Australian economy deserve particular attention. Connolly and Orsmond (2011) begin by outlining the most important economic theories to explain the relationship between the mining industry and broader economy. The Hecksher-Ohlin-Samuelson framework helps to interpret the direction and magnitude of the macroeconomic effects of the mining industry growth on the Australian economy (Connolly & Orsmond 2011). The most obvious, however, is the growing share of the mining industry in the nation’s GDP (from 6 to 14 percent) (Connolly & Orsmond 2011). The amount of royalties and taxes paid by the mining industry has increased from 0.5 percent of GDP in 2000 to almost 2 percent in 2009 (Connolly & Orsmond 2011). Shareholders in the mining industry have experienced a huge increase in dividends, whereas the intensity of the investment activity has increased almost five-fold (Connolly & Orsmond 2011). The boom in the mining industry has had many indirect impacts on the national economy, mainly through the subsequent increase in the national income and the real exchange rate, as well as the shift to tradables instead of non-tradables (Connolly & Orsmond 2011). The authors of the report predict that “the increase in mining investment still in prospect is likely to see the mining industry having a larger effect on the economy, both in terms of the availability of the factors of production for the non-mining sector and its income effects” (Connolly & Orsmond 2011, p.50).

Critical Appraisal

The discussed report provides a deep insight into the nature of the mining boom in Australia during the 2000s and its consequences for the entire Australian economy. One of the main benefits of the report is in that the authors compare the essential features of the current mining boom with those, which occurred in Australia at the end of the 20^th century. This way, the report creates a better picture of the economic growth in Australia and allows for more reliable predictions with regard to the future of the country’s mining industry. Unfortunately, comparing the most recent mining boom with similar booms in the 20^th century may not suffice to make relevant predictions. The macroeconomic environment in Australia has changed dramatically. Connolly and Orsmond (2011) may not be correct when they say that the recent boom in the mining industry has been much more serious and powerful than similar changes in the Australian economy during the 20^th century. Changes in economic policies, globalization, and market integration trends need to be considered in order to create a full picture of the macroeconomic environment and its implications for the future development in the Australian mining industry.

Another problem is that the authors fail to consider the most recent sustainability trends. Connolly and Orsmond (2011) speak about the nation’s mining industry as the source of infinite resources and commodities, with no regard to the emerging and established sustainability values. The authors promise that the future of the mining industry is likely to be profitable and prosperous, but what about the effects of the mining industry capabilities on the environment and population? Even the most advanced mining industries face numerous sustainability issues, from the use of protected native land areas to the creation of mine waste. The mining sector needs water to process ore and secure systems to provide wastewater disposal. These are just some of the many sustainability problems pressuring the mining industry in Australia.

One more question, which Connolly and Orsmond (2011) fail to answer, is what comes after the mining boom that cannot last forever. The recent success in the mining industry has become an extremely effective strategy against the economic recession, but the country cannot always rely solely on its mining industry and natural resources. The picture created by Connolly and Orsmond (2011) does not include possible problems and barriers to economic growth, once Australia’s natural resources start to deplete. The picture created by Connolly and Orsmond (2011) is too optimistic to encourage Australian authorities to develop alternative long-term plans of economic advancement. The authors do not provide any valid recommendations regarding possible innovations and investments in the mining industry. Therefore, the way in which the discussed report can be used remains unclear. 

To a large extent, the report presented by Connolly and Orsmond (2011) is a unique compilation of the economic and statistical data, which allows establishing effective causal links between the most recent changes in the mining industry and the broader macroeconomic trends. At the same time, the report is a good look into the past, rather than into the future. Developing policies and incorporating systemic changes, based on this report, is quite problematic. The authors speak about the major achievements in the mining industry over the past decade but do not mention problems that may emerge as a result of the rapid expansion in the mining sector. Thus, the data analyzed by Connolly and Orsmond (2011) is merely the starting point in a broader analysis of the most recent macroeconomic changes in Australia. One of the most important tasks is to create a balanced view of the positive and negative effects of the mining sector on the current state of macroeconomic affairs in the country. A valid picture will also include policy recommendations for the mining sector to ensure that Australia manages to use its economic growth potentials to the fullest. 

The beginning of the new millennium was marked with dramatic transformations in the Australian mining industry. The rapid growth of Asian economies caused a remarkable increase in demand for commodities. The boom in the mining industry made Australia stronger in the face of the economic recession. Unfortunately, the report made by Connolly and Orsmond (2011) does not include any information on the sustainability challenges facing the mining industry and does not allow anticipating problems that will inevitably emerge, as soon as Australia’s natural resources will start to deplete. The authors create a picture of the mining industry boom, which is too optimistic to become objective. As a result, they fail to motivate industry professionals and policymakers to consider alternative ways of future growth in the Australian economy.